Prime Minister John Key is not ruling out stripping Chinese fugitive Yong Ming Yan of New Zealand citizenship.

The Office of the Auditor-General is investigating why former Labour minister Shane Jones gave Mr Yan a New Zealand passport in 2008.

Mr Yan, a wealthy political donor - also known as Bill Liu - was red-flagged by Interpol as a fugitive.

He was wanted for fraud and identity theft in China and Internal Affairs officials advised Mr Jones that his application should be declined.

Mr Jones, who was stood down from his shadow portfolios in May, says he gave Mr Yan a passport on humanitarian grounds, and that he had been told Mr Yan would be arrested, executed and his organs harvested if he were sent back to China.

Yesterday, Mr Key said Mr Jones has some "big questions to answer". It was difficult to comment until Auditor-General Lyn Provost had finished her investigation, he said.

However, citizenship could be revoked if "[a minister is] satisfied that they obtained the citizenship by fraud, false representation or wilful concealment of relevant information or by mistake".

He rejected any suggestion the scandal had damaged public confidence in the passport system.

"Overall, most New Zealanders would have a high degree of confidence in the process for granting citizenship. He [Mr Yan] has been through a court process at this point and he has arguably passed that process."

Stripping Mr Yan of his passport would not automatically mean he would be returned to China, as he could apply for asylum. He was cleared in the High Court this year of passport fraud, although Justice Timothy Brewer ruled that the way he was granted citizenship was "highly suspicious".